HHS’ American Patients First broad effort to address high drug costs

The Trump Administration has released "American Patients First," its blueprint for lowering U.S. prescription drug prices. The plan includes proposals to create incentives for decreasing prices and reducing consumer out-of-pocket costs. However, the report is noteworthy for what it does not contain—any mention of allowing Medicare to negotiate drug prices directly or of allowing U.S. consumers to import drugs from other countries (American Patients First, May 11, 2018).

HHS is on board with these attempts to preserve the future of health care. "Securing the next generation of cures for the next generation of American patients will require radical reforms to how our system works," HHS Secretary Alex Azar said. "Our blueprint will bring immediate relief to American patients while also delivering long-term reforms." CMS Administrator Seema Verma added that, "CMS makes up 40% of all drug spending in America, and we will continue using our leverage to increase competition and strengthen negotiations in order to lower drug prices."

Proposals. Despite the absence of two major potential solutions, the blueprint contained several proposals for attacking high drugs costs that the pharmaceutical companies might not embrace. For example, it directs CMS to develop demonstration projects to test what it calls "value-based care," which is an arrangement in which the drug manufacturer would agree to refund money if the medication does not work as intended. Another proposal calls for evaluating options to allow high-cost drugs to be priced differently based on their indication—differing from Part D plans’ current requirements to pay the same price regardless of the drug’s use. Yet another proposal would make some generic drugs free for certain low-income Medicare beneficiaries.

Realignments. The blueprint identifies four realignments: (1) increase competition among drugmakers; (2) improve government negotiation tools; (3) create incentives for lower list prices; and (4) bring down out-of-pocket consumer costs. The difference between the higher prices U.S. consumers pay and the lower prices that consumers in other countries pay was referred to as "global freeloading," a common pharmaceutical industry term. In addition, today’s higher drug prices were blamed in part on both "the loss of patent exclusivity on successful products" (i.e., the patents on blockbuster drugs that made them billions of dollars ran out and generics flooded the markets) and the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148).

To accomplish these realignments, the plan includes several measures that HHS hopes will lead to lower drug prices, including (1) requiring drug ads to provide the drug’s cost to the consumer; (2) removing the ban that prevents some pharmacies from telling consumers that the drug they want is available more cheaply outside of their plan; (3) discouraging drug companies from using various tricks and tactics to prolong their patents to keep generics out of the market; (4) altering the current rebate system to allow some consumers to pocket a part of the rebates normally paid to insurers and employers; and (5) pressuring other countries to raise their drug prices.

A portion of the plan is devoted to HHS’s request for feedback on its proposals and its call for interested parties to propose further ideas for cutting costs, an indication that these proposals are still at least in part under development. An additional complication in HHS’ efforts to carry out this plan is that certain portions of what it aspires to do are outside of its immediate control. These portions will require Congress to enact laws to carry out the changes.

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